As an influential business thinker and leader in innovative management strategy, Gary Hamel understands what it takes for modern businesses to succeed. It is no longer enough for a business to lean on their core competencies, making incremental improvements to maintain an edge on the competition. In order to be a true leader in any industry, a business must focus on creating killer innovations.
This is the foundation of the “new economy” Hamel referred to. Today, we’re seeing the rise of the innovation economy, and those who cling to old ways of doing business are getting left behind.
What Is The Innovation Economy?
To fully understand what the innovation economy is, it is important to first know how it came about. The theory of this form of economics was developed only in the last few decades. Previously, the growth of the economy was determined by the market’s response to price signals on the supply and demand curves and the efficient allocation of resources. And this made sense as the economy emerged from the Second Industrial Revolution. However, as the pace of technological development increased—specifically with digital technology—everything changed.
While in older economic models innovation is seen as an independent force, in innovation economics, innovation is viewed as a central tenet that should be encouraged by government policies and bolstered by knowledge, technology, and entrepreneurship. Spurring these factors should be the main goal of economic policy, along with developing effective private-public partnerships that spark increased innovation and productivity.
The innovation economy can be illustrated by the U.S. economy of the last few decades. While capital was needed to move the economy forward, it wasn't the driver. It wasn't used to build more mills, plants, or factories. It was used to invest in research and development, better products and services, and introduce new ones. The most successful cities in America were not the manufacturing hubs, like Detroit. If anything, those cities suffered. The success stories came from the cities that encouraged innovation, like Silicon Valley, Boulder, and Portland.
How Is The Innovation Economy Changing Our World?
The innovation economy is shifting the focus of societies around the world. Instead of economies focused on developing and distributing valuable commodities from scarce resources, society's new goal is to increase the quality of life for all and expand wealth by developing new business models, products and services, and forms of production.
Innovation started in the tech industry and quickly snowballed into other sectors of the economy. With improved technological capabilities, more universally accessible knowledge bases, and a globalized world, individuals and firms were able to more effectively create products and services that improved people's lives.
Individuals can buy their groceries online and get it delivered to their doorstep in a few hours. Consumers can print a replacement part at home for their dishwasher. Users can find a date for the night, who may end up being the love of their life, with a simple swipe of their thumb. But it's not just about consumers and the products and services they use.
The innovation economy is impacting professions and the skills needed to pursue them. In the medical field, more accurate and precise machines allow doctors to diagnose with more efficacy. In the legal field, online platforms are allowing attorney's to specialize in niche areas. In education, gamification is enabling teachers to better connect with and engage students.
The common thread in many of these innovations is STEM. Science, technology, engineering, and math are in high demand. In order to bring great ideas to life, they need to be developed, researched, tested, produced, and disseminated to the public. This entire process requires strong STEM skills.
For this very reason, the government is pushing STEM educational opportunities. More scholarships are awarded, commercials and advertisements produced, and school funding given to science and math programs. The government is also pursuing the innovation economy as a whole.
To this end, the White House has released a Strategy for American Innovation. They want to invest in research and development, create better policies and regulations to encourage innovation, focus on strategic areas like smart cities and educational technology, and increase the innovation capacity of the government itself.
But it's not just about STEM, or even about learning new skills and acquiring more education. This helps, of course. However, creating an innovation economy requires thinking outside of the box and continually challenging and solving. Businesses are beginning to see that, if they want to compete, they need to be more flexible, encourage greater creativity and ingenuity, and quickly adapt to market demands. The innovation economy has forced businesses to be in a constant state of growth. There is always something new to learn or a way to improve.
Why Is The Innovation Economy Important?
The innovation economy stands to make huge and far-reaching waves in our world. The innovations that have been made over the last few decades, alone, have altered the way we live our lives, the way we do business, the way we consume, the way we connect with others, and what we value. This type of economy has made our day-to-day lives easier and more convenient, and created faster and better ways to do just about everything. This means that people have more time to do what they want and more money to save or spend on luxury items or services. In other words, we are able to live better lives.
Proof of this can be seen simply by looking at recent reports. Massachusetts, one of the leading states in innovation, measured the impact that the innovation economy has had on their state.
Massachusetts has the highest percentage of bachelor's-degree-holding adults. They also have impressively high job growth rates, both in their more innovative sectors as well as those in other sectors. Finally, when it comes to economic output, their innovation economy was able to reach nearly $210 billion—making them a leader in economic output.
The opportunities that have been cropping up because of a commitment to innovation can be seen from the influx of foreign migration to the city. People want to live in places where jobs are available, people are educated, and exciting opportunities are constantly popping up.
The innovation economy is here to stay. Any person or entity can learn to be innovative and compete in this new economy! Do you have what it takes to keep up? To learn more about how to drive innovation in your own business, check out how I and my team can help.